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The conventional wisdom on de-dollarization goes something like this: faster, cheaper cross-border payments mean the world needs the dollar less. A paper published by the Kansas City Federal Reserve flips that argument on its head.
Circle executive Gordon Liao, Cornell economist Eswar Prasad, and economist Tony Zhang co-authored the paper, arguing that financial innovations like dollar-backed stablecoins and tokenization are more likely to cement the dollar’s global role than chip away at it.
The numbers behind the argument
The dollar’s slice of global foreign exchange reserves has slipped over the past quarter-century, falling from roughly 72% in 2000 to 57% in the first quarter of 2026. That drop is real, and it feeds a steady stream of de-dollarization commentary.
But the paper points to a different metric: cross-border payments. The dollar still accounts for around 59% of transactions outside the euro area, a figure that has stayed remarkably stable even as reserves have drifted lower.
The stablecoin market makes the case more concretely. More than 98% of stablecoins by value are dollar-denominated, with USDC and USDT leading the field. When global users want a digital asset that holds its value and moves quickly across borders, they overwhelmingly reach for something pegged to dollars, not euros or yuan.
USDC alone has processed over $10 trillion in lifetime transactions, and the coin represents roughly 80% of dollar stablecoin on-chain activity in early 2026.
Circle CEO Jeremy Allaire has made a version of this argument publicly, framing regulated stablecoin frameworks as a mechanism for extending the dollar’s footprint at a moment when digital finance is expanding fastest in markets that traditional US banking barely touches.
Why stablecoins could be a Treasury tailwind
Here is the structural logic the paper lays out. Stablecoin issuers hold reserves, and those reserves are overwhelmingly parked in short-term US Treasuries and cash equivalents. As the stablecoin market grows, so does the pool of capital that must flow into dollar-denominated debt instruments.
The authors project that stablecoin reserves could eventually reach trillions in total value. At that scale, the demand effect on the Treasury market becomes meaningful, not a rounding error.
ECB board member Isabel Schnabel has acknowledged a version of this dynamic from the other side of the Atlantic. In her reading, growing stablecoin adoption could lock in dollar dominance through network effects, the same self-reinforcing logic that keeps one platform dominant long after competitors arrive.
What this means for the competitive landscape
No credible dollar competitor has emerged in the stablecoin market. Euro-denominated stablecoins exist but represent a small fraction of total supply. Central bank digital currencies from non-dollar jurisdictions are in various stages of development, but none has attracted the cross-border usage that would allow it to challenge the dollar’s network position in digital payments.
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